Power Up Wealth podcast – Episode 103 – Stop Procrastinating with Your Money
James Derrick 0:00
Have you been procrastinating a financial action when you know better? Chances are the answer is yes. I’m James Derrick, President of Smedley Financial and today we’ll be talking with our guest, Jordan Hadfield about three things you should be doing right now.
Shane Thomas 0:19
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James Derrick 0:36
Thank you for joining me today, Jordan.
Jordan Hadfield 0:38
Glad to be here, James.
James Derrick 0:39
Jordan is Vice President of Wealth Management at Smedley Financial Services. He has a Certified Financial Planning designation. Jordan, you recently wrote about stop procrastinating.
Jordan Hadfield 0:49
Yeah, that’s correct.
James Derrick 0:50
What do you love about this topic?
Jordan Hadfield 0:51
Procrastination is something that most people tend to do in different aspects of their lives. It’s very, very common. It reminds me my son, who is 18, he just went off to college. I used to say to him all the time, if there was a pill to cure procrastination, you would wait and take it later. We like to procrastinate. If there’s something that doesn’t need to be done now, then we often put it off. One thing I deal with in my job is when I’m giving financial advice to people, I’ve noticed a trend, and there are some pieces of advice that far more frequently get procrastinated than others. And so I just wanted to kind of call everyone’s attention to that and say it’s time to quit procrastinating on these things that we know are important we need to reduce the risk in our financial lives, and that’s exactly what these three financial moves are supposed to do.
James Derrick 1:42
All right, let’s dive in then. Number one is estate planning. How does somebody know that it’s time to get an estate plan?
Jordan Hadfield 1:49
Great question. Estate planning, more than any other financial topic, is procrastinated the most. Estate planning is constantly being put off, and it’s generally because it’s not a topic that people typically enjoy talking about estate planning. In other words, talking about what’s going to happen to their assets when they die. It’s not a fun topic, and estate planning in most situations require an attorney, and so you got to schedule an appointment and go meet with an attorney, and there’s, you know, a bill attached to that, and so it’s easy to procrastinate. There are a number of different times in our lives that we should use as landmarks as to when we should start an estate plan. And believe it or not, the first landmark is at age 18. There’s a couple things that we should do at age 18 relative to estate planning. Number one, a will. Even at 18 years old, it’s smart to have a will. Number two, it would be power of attorney. If something were to happen to my 18 year old and he didn’t have a power of attorney, it may be very, very difficult for me, as his father, to handle things on his behalf. Power of Attorney. This is not something we think about, but as we’re sending our children, sending our children off to college at 18, 19, 20, you know, if something were to happen to them, that power of attorney could be very, very beneficial. Advanced healthcare directives is something that is beneficial for an 18 year old. If someone needs to make healthcare decisions on the behalf of an 18 year old, that will definitely that will definitely help. And the other thing is a HIPAA release form. These are typically things we don’t think about for our 18 to 19-year-old children, but very valuable documents to have in place for them.
James Derrick 3:32
Okay, so they turn 18, and all these things that maybe the parents had automatically, they have lost. So it needs to be set up. I have to tell you that that is stunning at 18 years old, that you already might be creating these. I might have thought that it would be when you buy your first house or get married or have children. But this brings up another question, which is, when do you update your estate planning?
Jordan Hadfield 3:55
Great question. So the first landmark, I would say, is 18. Another landmark is when you get married and start to have children. Another landmark would be when you buy a house. Typically, when we talk about estate planning, we think of a trust. And in terms of a trust, if you own a home, you should absolutely be exploring what a trust can do for you. For most people, I say when you when you buy a home, your first home, that’s the time to start a trust and put the home in the name of the trust. That’s something that should be explored by every homeowner. From that point forward, typically what we recommend is to review the estate plan every time there’s been a major change in your life, or every five years. And again, this is something that’s often procrastinated. People go to an attorney, they get a trust, they get their other estate planning documents, and then they just put it on the shelf and forget about it. Reviewing an estate plan, reviewing beneficiary designations, reviewing this kind of stuff every five years is the recommendation, and that applies to everybody.
James Derrick 4:58
It’s good advice. Now let’s go back just for a moment and talk about how you said the home should go into the estate. Let’s talk about funding the estate, because a lot of people will pay all the money to go to an attorney and then miss that final step.
Jordan Hadfield 5:16
A trust is a document that, first and foremost, allows you to avoid probate, and that’s going to make the transfer of assets far more efficient. It’s going to keep those transfers of assets private, and it’s also going to avoid probate costs. So there’s savings in that. On top of all of the other benefits that a trust offers. When you have the trust, you need to re title your assets in the name of the trust. If you own a home and it’s in your name, then it’s not in the trust. You have to retitle the home so that the trust is the owner of the home. Same thing with typically speaking, we recommend non qualified accounts that are large be retitled in the name of the trust. So if you have a brokerage account, this is not an IRA or a 401(k), this is a joint account or an individual account. That account needs to be retitled into the name of the trust so the trust owns those assets. And then the individual who owns the trust is called the trustee of the trust. They control the trust, therefore they still control the assets, but it’s the trust that owns the assets. It’s no longer the trustee of the trust. That’s the benefit of trust.
James Derrick 6:27
Let’s jump into savings now. Let’s begin with starting early.
Jordan Hadfield 6:32
Yeah, so this is another thing that’s often procrastinated. The general retirement savings rule is 15% of gross income should be saved for retirement. Now that includes a company match. So if you’re working for a company, you qualify for their 401(k), they’re matching 3% that means you only need to contribute 12 with their three, you’ve hit your 15. But 15 is the current goal. That’s what we should be aiming for. This is something that’s very easy to put off, and that’s because 15% of your gross income going to retirement isn’t an easy goal to achieve, and it requires in most situations, it requires sacrifice in the now, and that’s not always easy. And so sometimes we’ll say, well, I’m going to contribute, you know, 7% now, and then 10 years, I’ll bump it up to 10% and then another 10 years, I’ll finally hit the 15. There’s a huge problem with this, and that is the time value of money. This is a common financial planning principle. Let me ask you this, James, I’ll give you a million dollars right now, or I’ll give you a penny, and that penny will double every day for a month. So one penny, two pennies, four pennies, eight pennies.
James Derrick 7:36
So I’m gonna go with the penny.
Jordan Hadfield 7:38
Ah, good choice. So a million dollars at the end of the month will still be worth a million dollars. That Penny is $10 million at the end of a 31 day month. And this shocks people, but do the math, it equals $10 million at the end of a 31 day month, but the growth doesn’t come in the first part of the month. Doesn’t even really come in the first two thirds of the month. It’s that last very end that last tale, last couple days of the month is where you get the most growth out of that penny. And what this illustrates is the time value of money. It is far more beneficial to start saving at age 20, even if it’s a little bit as opposed to waiting until age 30 and contributing double to your savings, or till 40 and doubling it still, because you don’t reach day 29, day 30, day 31 to really double your money the growth. It’s about time in the market. That’s what’s most important. The earlier we can get to that 15% goal, the more secure our retirement is going to be. Far too often we sacrifice retirement security for wants today. A lot of people need to readdress this.
James Derrick 8:51
And the best thing to do is to take the money out before it enters your cash flow, and then you can adjust your cash flow with what you have left.
Jordan Hadfield 9:00
Yeah and I’ll tell you.
James Derrick 9:01
Pay yourself first as we say.
Jordan Hadfield 9:02
Exactly, and a lot of the retirees today have the benefit of a pension. Pensions have largely gone away, and this next coming generation that’s going to be entering retirement is going to be forced to fund their own retirement. There will be no pension to save them.
James Derrick 9:17
Now is the 15% then, like the new rule of thumb?
Jordan Hadfield 9:22
Yes, for a long time, we heard it was 10% but a lot of those people saving 10% had pensions. As the pension has disappeared, 10% just isn’t enough for long term savings, plus you’ve got inflation and health care and those expenses that have continuing to increase. 10% just isn’t going to cut it anymore. If you’re looking for a retirement where your value of life doesn’t change, it needs to be 15% that is the general goal. Now, again, if you start later in life, 15% isn’t going to do it. If you’re like, 50 years old and you’re thinking, okay, maybe it’s time I start thinking about retirement, 15% is not nearly enough. But for someone who starts young and is continuing to save through their their entire career. 15% is the goal.
James Derrick 10:06
There’s a certain level of confidence if you’re hitting that for a long period of time.
Jordan Hadfield 10:09
So that is the general rule. Again, we would want to do in depth financial planning to determine if that’s enough, if you’re starting later.
James Derrick 10:16
So let’s now transition to risk and rebalancing. Do people remember to rebalance their accounts?
Jordan Hadfield 10:23
No, people don’t. This is also something that I see gets neglected or procrastinated, and that is rebalancing. A lot of people what does rebalance mean? Well, let’s say that I have determined my risk tolerance puts me in an 80/20 portfolio. That’s 80% stock, 20% bond. In other words, it’s 80% aggressive and 20% conservative. Well, those aggressive assets are going to grow much faster than the conservative assets, and so if five years down the road, I’m not going to have an 80/20 portfolio anymore. I may have a 93/7 portfolio. And in other words, without making any change to my investments, I am now taking a lot more risk than I was five years ago, just because the way you know the nature of these assets and how they grow. Another thing that I see often is people will incorrectly fear the market, or incorrectly get excited about the market, and they’ll make changes to their portfolio that are often unwise, and then they don’t know how to readjust back to the benchmark. In other words, if you’re scared that a recession is coming, you may think to yourself, market drop, I’m going to lose a bunch of money. I’m going to go from aggressive to conservative. I’m going to take everything, put it in a conservative account. History shows that the vast majority of the time this is the wrong move, but people do it anyway, and then the question becomes, when do you go aggressive again? And some people put this off. It’s hard jumping back into the market. Likewise, some people will get really excited. They’ll take a bunch of money, they’ll throw it in super aggressive stocks now they’re too aggressive. They’re out over their skis. When do we dial it back? These decisions need to be addressed. We need to look at rebalancing. I would recommend at least once a year, look at the value of your portfolio. Where are we taking risk? Where does it make sense to dial that risk back or move that risk up again to make sure that we’re hitting our benchmarks so that we can hit our financial goals and have a secure retirement?
James Derrick 12:27
Now I know a lot of 401(k)s will automatically set that up for you, so let’s say that you pick an allocation that you want, and then it’ll say, do you want to rebalance quarterly, annually, never. And you choose of those options, would you say that annually is usually the best?
Jordan Hadfield 12:45
Yeah, I mean, I don’t think it makes a huge difference in the scheme of things. Whether you’re rebalancing quarterly or annually, if it’s happening at least once a year, you’re fine.
James Derrick 12:53
As a financial advisor, how do you fit in to all this?
Jordan Hadfield 12:57
The recommendations that I provided are very general in nature. As far as estate planning goes, what exactly is needed? As far as funding retirement, how much should we be funding? Where should it be going? All of that kind of stuff. As far as rebalancing all of these things, when you look into it in detail, becomes very nuanced and becomes very important. As a financial advisor, I’m reviewing this stuff with my clients on a case by case, on a very personal basis, taking into consideration my clients needs, my clients goals, my client’s situations, and making sure that all of these bases are covered. And by the way, these are only three recommendations. I could fill up an entire magazine with other recommendations of things that people you know should be paying attention to. These are just three of the most common ones that I see neglected.
James Derrick 13:45
Good place to start.
Jordan Hadfield 13:46
Yes.
James Derrick 13:47
Thank you, Jordan, for coming in to talk with us.
Jordan Hadfield 13:49
Yeah, thanks for having me, James, always fun.
Shane Thomas 13:56
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory services offered through Smedley Financial Services, Inc.® Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
Stop Procrastinating: 3 Financial Moves to Make Now — Jordan Hadfield
